Last Tuesday’s budget announced various new tax measures and signalled the possible challenges that could impact the sustainability of our tax receipts.
But what about the body tasked with delivering these changes and making the tax system sustainable, the Revenue commissioners? As gatekeepers of tax administration, with an increasing role in tax policy at home and abroad, does Revenue have the resources it needs to deliver the world-class tax regime that’s needed to support our economy? In our view, more could be done to support this critical office.
Revenue is asked to deliver a world class tax service as expected by domestic business and the world’s largest multinationals based here in Ireland. This includes, not only administering the tax system and collecting taxes, but also implementing tax policy changes, simplifying the tax code, dealing with administering any remixing and broadening of the tax base and defending taxpayer positions internationally.
While we focus on maintaining a competitive and stable tax regime, ultimately tax laws are only as effective as the administration supporting and policing them — and integral to this are the systems, technology and people employed to administer the laws. In particular, in our experience, under-resourcing is resulting in decisions from Revenue in a time frame longer than is desirable for business.
Revenue has already hugely invested in technology and digital transformation enabling digital audits and real time reporting, with some 6,000 out of its 7,000 workforce now working from home
Revenue needs to be fully resourced and funded so that it can tackle the big challenges of the administration of and broadening existing taxes while delivering against new international tax norms. However, the expenditure reports released last week as part of Budget 2023 suggest that Revenue is being asked to do more, a lot more, with the same level of funding.
Revenue’s estimate of its expenses for 2023 comes to €507 million, a 2 per cent increase on 2022 levels. This breaks down into €486 million of current expenditure (salaries, office expenses, etc) and €21 million for capital expenditure (delivery of longer-term projects).
A rewrite of the existing tax code is currently needed from a tidying-up and simplifying perspective. Periodical reviews and rewrites (every 15 or 20 years) should be part of the legislative process, arguably even more frequently when there are many changes under way. The last consolidation of the Taxes Acts was in 1997, 25 years ago. Without these rewrites, old and redundant pieces of legislation remain on the books, thereby adversely affecting taxpayers and tax administration, with an increased cost of compliance for all.
In the event that we move away from taxing labour and profits, towards taxing wealth and assets (as suggested by the OECD, the Tax and Welfare Commission and others), this would require investment by Revenue (and others) to deliver. Re-mixing our tax base is a longer-term possibility, but there are also immediate asks of the Revenue, for example, administering the new Temporary Business Energy Support Scheme, phasing out the Covid schemes including the TWSS and EWSS and assisting the Department of Finance with consideration of a possible third rate of income tax. We’re not seeing a corresponding investment in the Revenue to facilitate this.
Revenue has already hugely invested in technology and digital transformation enabling digital audits and real time reporting, with some 6,000 out of its 7,000 workforce now working from home. Ireland performs well, according to the OECD, in terms of tax administration, but there are increased ambitions to expand real time reporting and the use of data intelligence and analytics.
This will require increased capital investment. In our experience, in order to get value from digital transformation, effective change management is also needed alongside upskilling people and digitising processes. All of this requires people and capital resources.
Tax disputes are increasing and will continue to increase if the OECD’s tax reform goes ahead. But are we prepared for this increase? Revenue has invested in the tax treaty division and through supporting taxpayers in international disputes in recent years, but more will be needed as the global tax landscape shifts.
In confronting noncompliance, Revenue has successfully optimised the use of its resources and maximised the effectiveness of its compliance interventions. On average, some €500 million is collected by Revenue annually from its audit and compliance intervention activities, meaning that it is self-sufficient from an exchequer perspective. For a tax administration dealing with the largest businesses in the world, it punches well above its weight while still performing well by international standards in change management and digital transformation.
The necessity to offer a world-class tax system is at risk of being undermined if the supporting tax services and institutions are not also world class. We believe that Revenue does an excellent job, and its work is so important. However, we fear that it is not adequately resourced and supported to ensure a sustainable tax system that can attract the biggest businesses in the world into the future.
Susan Kilty, head of tax, PwC Ireland